Saturday, May 30, 2015

Greece's 1-2-3 Plan For Default & Recovery

May 30th
Greece's 1-2-3 Plan For Default And Amazing Recovery (LINK)
Greece, which has been stuck in a deep debt crisis for the past five years, is due to pay back 300 million euros ($410 million) to the International Monetary Fund next Friday (June 5th).

Only after a default can contracts like pensions or employment agreements be breached. Greece's “excessive government headcount, wasteful programs and overly generous compensation packages are due for major reforms." However, such reforms can only be implemented after Greece defaults on their payments. In other words, the IMF and other foreign creditors have to take the hit first before Greece's government employees, pensioners, and all who benefit from government services can

Greece’s troubles (central government debt/GDP of 192%) have gotten so far out of control that avoiding a default is unrealistic. “So, embrace it. Eventually, a debt restructuring should reduce this burden to something more manageable. Once the default has begun it should be much easier to restructure other expenditures. For one thing, the Greek government might not be able to borrow any more money. So, they will have to do with the revenue they have. A balanced budget!” 

Greece needs a healthy private economy, capable of expanding employment and rising prosperity. "Before any big reductions in government spending, they should have a major tax reform to get the near-dead economy moving again. Steve Forbes has proposed a combination of a 10% flat income and corporate tax rate; a 10% payroll tax; and a 15% VAT. This is a fine strategy, and the result would be a gigantic expansion in economic activity. It is quite possible for Greece’s nominal GDP, in euros, to expand by as much as 300% in the decade following such a tax reform. Tax revenues, which have been falling since 2008, would expand by roughly the same amount.

“The private economy would be where all the action is. Typically, after a crisis period, there are gigantic business opportunities everywhere. A middle-class life in the private sector becomes more appealing than life as a government parasite. The steps to take are now clear. First, the default. Second, tax reforms, and other regulatory reforms to make Greece a good – nay, a great – place for business. Third, eliminating all the corruption and rot inherent in the government’s present spending patterns, while preserving important services and welfare programs.”

Questions:
Do you think this is a good plan for Greece? Can you come up with a better option? How do you think Greek pensioners and other citizens that benefit from these government services will react to this plan? How do you think Greece's creditors will react to this plan? Lastly, if Greece does default do you think they are putting themselves at risk of getting thrown out of the Eurozone?   

6 comments:

  1. I think Greece will default because they don't really have any other options. In the long run, it may be better to just get on with it and stop delaying the inevitable. With the default done, the plan above can be put into place and hopefully jump start the economy. Most likely, Greece will leave the Eurozone as their leaders already complain about the policies not helping Greece out.

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  2. I agree with Nolan that this was obviously inevitable and the country doesn't have many other options. I like how the author put a positive spin on a dreary situation in talking about embracing the inevitable and debt restructuring could be good for the country. However, I'm less certain in saying that Greece will most likely leave the Eurozone. While I think this would be rightful and is definitely possible, we have learned about the several reasons why the Eurozone might not want this to happen. The default might put the exit on an edge, but I don't know if it will finally push them out.

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  3. I also have to agree with Nolan that Greece will have to default and that this is the inevitable option. Also, I agree with both points made by Nolan and Cam, that Greece might be forced to leave the Eurozone, but to Cam's point we have learned reasons as to why we would not want this to happen. As to whether Greece will be forced out I am unsure, but it will be interesting to see what happens in the coming weeks.

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  4. I think the odds are against Greece. Like Nolan said, it is inevitable for the Greek economy to default and this is something that is becoming more of a reality than it once an option. To me, it seems like it is not only Greece that is unwilling to accept the inevitable but their creditors and the eurozone countries as well. I agree with Cam, I think the Greek default may jeopardise their relationship with their creditors. However, I am not sure that the country would be kicked out of the eurozone. Personally, I think the eurozone countries have put in too much effort making sure their currency does not collapse. As a result,I think they may be willing to do whatever is necessary to make it successful in the future, even if that means keeping Greece after their third consecutive default.

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  5. I agree with everyone that Greece will default. The deadline for the payment is already here, so Greece does not have a choice; it might have to default. The default may negatively affect the relationship between Greece and its creditors.

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  6. The situation for Greece is getting worse and worse every time there is a new article. So I agree with everyone that a default is inevitable, but to execute the second and especially, third is hard to foresee. Because citizens might be disappointed or at least doubtful of their government's ability and credibility. And it is hard to eliminate ALL of the corruptions in the Greek government, or any government. I also think that the default will negatively influence Greece's relationships with its creditors, but there's no other option.

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